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Every major market index has been marching to the beat of their own drum.

The Nasdaq-100 just slid to the lowest level since May 18, while the Dow Jones Industrial Average (DJIA) set a new all-time (intraday) high just on Monday. The S&P 500 is about a percent below its all-time high.

Some reason that there’s no longer enough liquidity to buoy the whole market.

This begs the question, if all this range bound churning is a sign of internal deterioration (and the ‘inevitable’ drop) or if stocks are just taking a breather and revving up for the next spurt higher?

KISS – Bottom Line

The May 29, 2017 Profit Radar Report already observed this: “There are times when indicators line up and we discuss (high) probabilities, and there are times when indicators conflict, and we are forced to discuss possibilities. Unfortunately the later is the case right now.

Each of the major indexes is tracing out a different EWT pattern, breadth measures, seasonality and investor sentiment do not offer a clear message. Therefore we are reduced to dealing with possibilities.

The weight of evidence suggests that in the not so distant future stocks will run into some trouble. The up side target for the S&P 500 is 2,450 – 2,530. The S&P 500, Russell 2000, DJIA and Nasdaq-100 are all overbought, but above short-term support. As long as this support holds, more gains are likely.”

Ever since we’ve been watching support (which has been at 2,420 for the S&P 500) as stocks have gone nowhere. It should be noted that the 2,420 support level is becoming too obvious and therefore less important. The June 25 Profit Radar Report stated that: “A move below 2,420 (especially 2,400) would increase the odds that a multi-week/month top is in.”

Watching support (and resistance) is not the most exciting approach to market forecasting, but there are times where it’s best to realize there are no clear signals (such as in May), and simply wait for the market to offer the next actionable clue.

This approach protects against overtrading or the anxiety associated with a non-performing (or worse, losing) trade. In short, it provides a measure of peace of mind, a rare commodity in this market.

Short-term, we are waiting if the S&P pushes deeper into the 2,450 – 2,530 target zone, or if the June 19 high at 2,454 was the beginning of a more protracted (but temporary correction).

Whichever direction the market breaks, it will eventually be reversed. Ideally, we are looking to sell the rips (above 2,454 if we get it) and buy the eventual dip (although this dip may last longer than many expect).

Continued updates are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Tech stocks have been on fire before hitting an ‘air pocket’ last week. Is the current dip the end of the tech party or a buying opportunity?

After pointing out Fibonacci resistance (for QQQ) at 143.75, the May 31 Profit Radar Report noted that: “The Nasdaq-100 painted a bearish reversal candle today. Every red candle high (since October 2013) saw lower prices at some point over the next 1-2 weeks.”

Seven days after the May 31 bearish reversal candle, the Nasdaq suffered a monster reversal candle. Volume (for QQQ) soared to a 2017 record. The June 9 ‘red stick’ erased 10 days of gains.

On that day, more than one third of the 100 QQQ ETF components suffered a buying climax (where a stock rallies to a new 52-week high, but ends down for the week). Buying climaxes are generally a sign of distribution and indicate that stocks are moving from strong to weak hands.

Similar buying climaxes in 2010, 2014, and 2015 led to noteworthy pullbacks.

The problem with extreme ‘air pocket’ days (like June 9) is that they almost instantly create an oversold condition, and the propensity for a bounce.

Next support for QQQ is at 137.20 – 135.70. Resistance is around 141. Support may cause another bounce, but risk of further losses remains elevated as long as QQQ is below 141.

AAPL

Due to its humungous market cap, AAPL is Wall Streets’ VIP and MVP stock. More often than not, if AAPL sneezes, the S&P 500, Nasdaq and at times DJIA will catch a cold.

Based on the long-term black trend channel(s), we determined that up side for AAPL (and indexes like the S&P 500 and Nasdaq) was limited after hitting 155 in May.

The May 29 Profit Radar Report stated: “AMZN almost cracked the 1,000 mark, which more than anything is a psychological ‘resistance’ level. Cycles project a severe drop for AMZN. Last time this happened (late 2015), AMZN reacted late, but ultimately dropped around 30%. Although more gains are possible, late buyers will probably end up regretting their decision.”

Since May 29, AMZN gained as much as 2%, but subsequently dropped as much as 8.8%, before finding support around 925 (green line). 925 and support near the black trend channel deserve to be watched. It would take a move above 991 to unlock the potential for new highs.

Summary

Based on our research, we don’t expect to see a major market top at this time, but QQQ, AAPL and AMZN are likely to enter a period of consolidation and quite possible some ‘shake out’ moves designed to shake out weak hands.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

For the past couple of months we’ve stuck to our short-term bearish and mid-term bullish outlook (the mid-term bullishness may morph into long-term bullishness).

This means, we’ve been buying dips, but refusing to chase trade to the up side.

We got the first buyable dip on September 9. Between September 9 -13 we bought the SPDR S&P 500 ETF (SPY), iShares Russell 2000 ETF (IWM), and VelocityShares Short-term VIX ETN (XIV).

1st Tell Tale Sign

However, the September 20 Profit Radar Report warned that: “In February and June stocks produced a breadth thrust from their low. Thus far however, the S&P 500 hasn’t shown any convincing follow through to the up side. The odds of soaring without a prior test or break of the lows have diminished. We are taking some chips off the table.”

Over the next few days, we sold IWM and XIV for gains of 2.33% – 14.46%. We continued to hold SPY in case stocks move higher, but closed that position at breakeven on October 4.

The chart below, initially published in the September 11 Profit Radar Report, shows the potential down side targets based on Fibonacci retracement levels.

Ultimately, the scope of this correction depends on whether stocks will retrace the gains since the February low (S&P: 1810) or June low (S&P: 1,992).

We believe the retracement will be more on the shallow side, that’s why we bought the first buyable dip in September.

2nd Tell Tale Sign

The October 2 Profit Radar Report highlighted a concerning Nasdaq constellation: “The Nasdaq-100 and QQQ ETF are near trend channel resistance, and perhaps more importantly, near Fibonacci resistance and the 2000 all-time high (RSI and Nasdaq stocks above their 50-day SMA did not confirm this high). We expect new all-time highs later this year, but if QQQ is going to take a breather, it could be around 120+/-.”

Yesterday (Monday), QQQ matched the September 22 all-time closing high at 119.48, but RSI deteriorated even further, a bearish omen.

3rd Tell Tale Sign

Although the S&P 500 was stuck in a triangle with lower highs and higher lows, internal strength was wilting (the McClellan Oscillator and Summation Index made lower lows – see bottom graphs). The chart below was published in the October 9 Profit Radar Report.

Summary

It seems like stocks want to correct further before moving higher. This correction could stop in the 2,120 – 2,100 zone, but it could also go quite a bit lower.

We will be looking to buy the dip, because a number of indicators suggest a strong rally following this correction.

When we buy, depends on the structure of the decline, bearish sentiment extremes, and whether we see bullish divergences. The Profit Radar Report already identified a beaten down low-risk value ETF and an aggressive high octane ETN with a built in safety cushion to take advantage of the year-end rally.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

The chart below plots the Nasdaq-100 (represented by the QQQ ETF – right graph) against the S&P 500 and NYSE Composite.

QQQ has been stuck in neutral, while the S&P 500 and NYSE move ahead in second and third gear.

What does this mean for the stock market in general?

We’ve probably been conditioned to believe that large tech underperformance is bad for the broad market. And over the short-term (1-4 weeks), historical performance numbers support this conclusion.

Over the long-term (3-12 months) however, large tech underperformance is actually positive for the overall market. How come?

There are probably several plausible explanations, here is mine:

‘Bullish Ointment’

Since the very beginning of this rally, the Profit Radar Report pointed out the remarkable strength of the post February 11 meltup:

February 17 PRR: “The rally of last Thursday’s low at 1,810 has been very strong. Historically, this kind of ‘escape velocity’ can potentially carry stocks higher for months.”

February 21 PRR: “From February 12 – 17, the S&P 500 gained more than 1.5% a day for three days in a row. Since 1970, this has happened only eight other times. One year later, the S&P 500 traded higher every time, with an average gain of 19.16%.”

March 20, PRR: “Although the S&P 500 is still 3.16% below its November 3, 2015 intraday high at 2,116.48 (and 4% below its all-time high), the NY Composite a/d line already surpassed its November 3, 2015 high. While the S&P retraced only 78.6% of its prior losses, the NYC a/d line already retraced 117.83%. This data suggests that the rally from the February 11, 2016 low is stronger than the rallies from the September 2015 and October 2014 lows.”

A strong rally is like the proverbial tide that lifts all boats. Unlike other rallies in 2014 and 2015, which were more selective, this rally is actually ‘lifting all boats.’

The NYSE Composite Index consists of some 1,900 stocks (large, mid, small-cap stocks). The Nasdaq-100 of only 100 large cap tech stocks.

The fact that the NYSE Composite started to outperform the QQQs shows that liquidity is penetrating all corners of the market. That’s a good long-term sign.

Fly in the Ointment

However, there is a bearish fly in the bullish ointment. The second chart plots the S&P 500 against the percentage of S&P 500 and NYSE stocks above their 50-day SMA.

The percentage of NYSE stocks above their 50-day SMA has been stronger than the percentage of S&P 500 stocks, which confirms the strength of the broader, more diversified NYSE composite.

As of Wednesday’s close, the percentage of NYSE stocks failed to confirm the new S&P 500 (and NYSE Composite) recovery highs (short red line). The percentage of S&P 500 stocks above their 50-day SMA has been lagging since March 30 (longer red line).

All the strong breadth reading throughout this rally confirmed our February 11 buy signal.

Although we anticipated a temporary pullback, the April 3 Profit Radar Report stated that a break below 2,040 is needed as the first step towards confirming further weakness.

Staying above support, combined with the long-term bullish developments registered in recent weeks/months has buoyed the S&P 500 higher (the rally from the February low looks like a micro copy of the 2013 rally).

Unless the bearish divergences mentioned above are erased, the S&P 500 is nearing another inflection zone that may rebuff stocks for a little while.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Sometimes, investing can be so simple … if we don’t complicate things.

Here is the most basic of ‘indicators’. It has a 100% accuracy rate since the start of the 2009 bull market. In fact, it’s so basic, calling it an indicator is probably overkill.

Open chart gaps. The gaps we’re talking about are price gaps caused by overnight losses.

Our March 7, 2013 article “QQQ – Open Chart Gap Magnets” noted that: “Open chart gaps have acted as a magnet for the S&P 500 and Nasdaq, 100% of the time since 2010. The 2010, 2011, and 2012 declines all left open chart gaps … and all of them got filled.“

Over three years later, the accuracy rate is still 100%.

Various market indexes – including the S&P 500, Nasdaq-100 and Nasdaq Composite – left a massive open chart gap on January 4, the first trading day of the year (see chart).

This open chart gap (at S&P 2,043.62) was one of six reasons why the Profit Radar Report issued a buy signal on February 11 at S&P 1,828. This chart gap also served as our up side target.

The S&P closed the open chart gap on March 17.

The Cohort Went Short

According to an April 5 Bloomberg article, investors were short $1 trillion worth of stocks (the highest short interest since 2008).

Looks like bears got trapped again. One reason the Profit Radar Report didn’t recommend shorting stocks is the open PowerShares QQQ ETF (Nasdaq: QQQ) chart gap; in fact, there are two chart gaps.

One at 111.84, another at 113.25. The gap at 111.84 is massive. History has taught us that shorting against chart gaps tends to be a losing proposition.

QQQ has now come within striking distance of the lower gap. There are some bearish breadth divergences already, but once the gaps are closed, the magnetic force pulling stocks higher diminishes, and the odds for a pullback increase.

A temporary pullback after (even before) closing the first gap followed by another bull leg to close the second gap is possible.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

The S&P 500 lost as much as 229 points or 10.92% in three days. The Nasdaq lost as much as 763 points or 16.77% over the same three days.

Wow. To be honest, I did not see that one coming, at least not as intense.

However, there were tell tale signs – a writing on the wall – that a big selloff is a real possibility. There was no reason for us to own stocks.

Here are three factors that caused (or certainly contributed) to this 3-day meltdown, and what they mean going forward:

‘Bad Breadth’

We have looked at the market’s internal deterioration (‘bad breadth’) many times in recent weeks (the last time was here).

The July 19 Profit Radar Report published this chart and warning (the S&P closed at 2,126 that day):

“Although investors are buying, the surge in demand (appearance of buyers) has not been commensurate to the surge in price. The percentage of stocks above their 50-day SMA graph shows that investors are very selective right now. Only 41% of NYSE stocks are above their 50-day SMA, compared to 71% in April and 61% the last time the S&P was near 2,130 (late May). There’s a short-term bearish divergence, as the S&P 500 moved higher on Friday, but the percentage of stocks above their 50-day SMA lower.”

Mutual Fund Cash Levels

The August 2 Profit Radar Report looked at mutual fund cash levels and noted the following: “One of the bigger worries could be mutual fund cash levels, which just dropped to 3.2%, an all-time low. If a large number of investors decide to sell, fund managers will be forced to sell fund holdings, which has the potential to turn into a chain reaction.”

Elliott Wave Theory

Elliott Wave Theory. Some love it, others hate it. I’ve found that there are times where EWT is very helpful, if interpreted correctly.

The August 16 Profit Radar Report said this about the bearish potential of EWT:

“A break below 2,052 may indicate a wave 3 lower.”

What is a wave 3? The third wave of an Elliott Wave pattern is always the most powerful one. It generally goes further than expected.

What’s Next?

Elliott Wave Theory may hold the most clues about what’s next for stocks. Based on the intensity of this selloff, it is likely to turn into a 5 wave decline with a more lasting low in October, similar to 2011. Here is how things looked and turned out in 2011.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

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Since September 2014, the Nasdaq Composite suffered seven false. This is the most ever.

A false breakout, or fake out breakout, is a break above prior highs followed by drop back below (red ovals).

Obviously, if you are an investor who buys the breakout, the Nasdaq’s recent habit is quite annoying.

The Nasdaq Composite consists of all stocks traded on the Nasdaq (about 3,000), but there is no Nasdaq Composite ETF.

The PowerShares QQQ ETF (Nasdaq: QQQ) is based on the Nasdaq-100 (100 of the largest domestic and international nonfinancial companies listed on the Nasdaq).

The July 19 Profit Radar Report warned against a false breakout, when it cautioned that: “Despite Friday’s strong QQQ performance, the majority of QQQ component stocks closed the day in the red. QQQ sports two big up side gaps, is overbought based on 2-day RSI, and is near a cluster of trend line resistance levels.”

Subsequently, the QQQ ETF dropped below support, and is now trying to get back above prior support (now resistance).

Historically, clusters of fake out breakouts are not necessarily bearish.

A bigger and better reason for caution is lagging breadth.

There are open chart gaps at 114.20 and 108.50.

Odds are that both gaps will get filled, the question is in which order. More chopping action may be ahead.

The S&P 500 chart offers a bit more clarity than the QQQ chart right now. Here’s the S&P 500 forecast.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.